Wall Street: Rein in Big Business

TIMOTHY A. CLARY/AFP/Getty ImagesA sign for Wall Street is seen before the opening bell.Overshadowed by the insurance industry’s mendacious campaign to sabotage health reform, something even worse is going on in Washington.

Wall Street banks and the financial industry in general is waging all-out war against (1) any federal regulation of their reckless trading practices and (2) any protection for the very taxpayers whose generosity bailed out the banks when they went bust.

Have they no shame? you ask. Hell, no, not where money’s involved.

At issue specifically is the Obama administration’s determination to put a rein on trading in the type of largely worthless derivatives that crashed the system and produced the current recession, and also to create a new Consumer Financial Protection Agency to oversee mortgage lending and credit card practices, among other things.

To judge by the overheated reaction of Big Business mouthpieces like the U.S. Chamber of Commerce, you’d think Washington was Moscow in 1917 and that Lenin had just pulled into Union Station to take over the place.

As best we can understand it, the industry’s argument comes down to this: More regulation and consumer protection isn’t necessary because — don’t laugh — there’s plenty of that already; regulation equals socialism and is inconsistent with capitalism; and besides, the banking industry knows best how to run its business.

What a crock! In fact, Washington has been steadily stripping the system of any real regulation for the last 25 years, including repeal of Glass-Steagall, the Depression-era act that separated commercial and investment banking. Its repeal (primarily at the request of Citigroup incidentally), perhaps more than anything else, set the stage for the creation of too-big-to-fail banks, like Citicorp, and the casino-style investment banking that collapsed the system.

It’s true, as the industry argues, that federal agencies charged with monitoring the financial system and protecting the consumer (Federal Reserve, Federal Deposit Insurance Corp., Federal Trade Commission) already exist. But their failure in the current crisis only strengthens the case for tougher regulation and for some agency more directly charged with looking out for the consumer.

The argument that more government involvement is a step toward socialism ludicrously ignores the fact that we’re already more than half way there: We privatize bank profits but socialize bank losses. The consumer-taxpayer gets it in the neck either way.

For all the anti-regulation rhetoric emanating from Wall Street, the Obama administration’s regulatory proposals are really pretty tame stuff. Indeed, Heather Booth, director of Americans for Financial Reform, a consumer group, has complained that the proposed consumer agency "does not do enough to protect taxpayers an d our economy."

The White House already has given ground on some proposed protections, notably the proposal for "plain vanilla" mortgages and credit cards that would lower costs to consumers and might even be understandable by laymen as well as industry lawyers.

The sorry fact is that most mortgage and credit card agreements are written to limit industry liabilities and commitments to the consumer.

The financial industry’s attack on efforts at tighter regulation, coupled with a new round of colossal bank bonuses, finally has angered even the low-keyed, consensus-coveting Obama administration. Last week, the president finally got his dander up.

"It has never been more important to have a watchdog function like the one we’ve proposed," he said. "And yet, predictably, a lot of the banks and big financial firms don’t like the idea of a consumer agency very much. In fact, the U.S. Chamber of Commerce is spending millions on an ad campaign to kill it."

The only thing surprising about that is that the president seemed surprised. Doesn’t he realize he’s battling an industry that believes it owns Congress? And why not. It has paid enough for it.